A

Amenity; A feature of the home or property that serves as a benefit to the buyer but that is not necessary to its use

Amortization; Repayment of a motgage loan through monthly installments of principal and interest. The monthly payment amount is based on a scedule that will allow you to own your home at the end of a specific period of time.

Annual Percentage Rate APR); Calculated by using a standard formula, the APR shows the cost of a loan; expressed as a yearly interest rate, it includes the interest, points, mortgage insurance, and other fees associated with the loan.

Application; The first step in the official loan approval process. This form is used to record important information about the potential borrower necessary to the underwriting process.

Appraisal; A document that gives an estimate of a property's fair market value. An appraisal is generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property.

Appraiser; A qualified individual who uses his or her experience and knowledge to prepare the appraisal estimate.

ARM Adjustable Rate Mortgage; A mortgage loan subject to changes in interest rates. When rates change, ARM monthly payments increase or decrease at intervals determined by the lender. The change in monthly payment however, is usually subject to a cap.

Assessor; A government official who is reponsible for determining the value of a property for the purpose of taxation.

Assumable Mortgage; A mortgage that can be transferred from a seller to a buyer. Once the loan is assumed by the buyer the seller is no longer reponsible for repaying it. There may be a fee associated with the transfer of an assumable mortgage.

B

Balloon Mortgage; A Mortgage that typically offers low rates for an initial period of time (usually 5, 7, or 10, years). After that time, the balance is due or is refinanced by the borrower.

Bankruptcy; A Federal Law whereby a person's assets are turned over to a trustee and used to pay off outstnding debts. This usually occurs when someone owes more money than they have the ability to repay.

Borrower; A person who has been approved to receive a loan and is then obligated to repay it and any additional fees according to the loan terms.

Building code; Based on safety standards within a specific area, a building code is a regulation that determines the design, construction, and materials used in building.

Budget; A detailed record of all income earned and spent during a specific period of time.

C

Cap; A limit, such as that placed on an adjustable rate mortgage, on how much a monthly payment or interest rate may increase or decrease.

Cash Reserves; A cash amount sometimes required to be held in reserve in addition to the down payment and closing costs. The amount is determined by the lender.

Certificate of Title; A document provided by a qualified source, such as a title company, that shows the property legally belongs to the current owner. Before title is transferred at closing, it should be clear and free of all liens and other claims.

Closing; Known as a settlement in some areas, the time a property is formally transferred from seller to buyer. It is also the time when a borrower taked on the loan obligation, pays all closing costs, and received title from the seller.

Closing Costs; Customary costs above and beyond the purchase price of property that must be paid to cover the transfer of ownership at closing. These costs vary by region and detailed to the borrower after submission of a loan application.

Commission; An amount, usually a percentage of the property sales price, that is collected by a real estate professional as a fee for negotiating the transaction.

Conventional Loan; A private sector loan, one that is not guaranteed or insured by the U.S. Government.

Cooperative (Co-op); Residents purchase stock in a cooperative corporation that owns a structure. Each stockholder is then entitled to live in a specific unit of the structure and is responsible for paying a portion of the loan, or other expenses incurred for the structure.

Credit History; History of an individual's debt payment. Lenders use this information to gauge a potential borrower's ability to repay a loan.

Credit Report; A record that lists all past and present debts and the timeliness of the repayment of those debts. It documents an individual's credit history.

Credit Bureau Score; A number representing the possibility a borrower may default on a debt. It is based upon credit history and is used to determine the ability to qualify for a mortgage loan.

D

Debt-to-Income Ration; A comparison of gross income to housing and non-housing expenses. With the FHA, the monthly mortgage payment should be no more than 29% of the monthly gross income (before taxes) and the mortgage payment combined with non-housing debts should not exceed 41% of income.

Deed; the document that transfers ownership of a property.

Deed-in-lieu; To avoid foreclosure ("in lieu" of foreclosure), a deed is given to the lender to fulfill the obligation to repay the debt. This process doesn't allow the borrower to remain in the house but helps to avoid costs, time, effort, and humilation associated with the foreclosure process.

Default; The inability to pay monthly mortgage payments in a timely manner or to otherwise meet the mortgage terms.

Delinquency; Failure of a borrower to make timely mortgage payments under a loan agreement.

Discount point; Normally paid at closing, generally calculated as 1% of the total loan amount, discount points are paid to reduce the interest rate on a loan.

Down Payment; the portion of a home's purchase price that is paid in cash and is not part of the mortgage amount.

E

Earnest Money; Money put down by a potential buyer to show that he or she is serious about purchasing the home. It becomes part of the down payment if the offer is accepted, is returned if the offer is rejected, or is forfeited if the buyer pulls out of the deal.

EEM; Energy Efficient Mortgage; An FHA program that helps homebuyers save money on the utility bills bu enabling them to finance the cost of adding energy efficiency features to a new or existing home as part of the home purchase.

Equity; An owner's financial interest in a property, calculated by subtracting the amount still owed on the mortgage from the fair market value of the property.

Escrow Account; A separate account into which the lender puts a portion of each monthly payment. An escrow account provides the funds needed for such expenses as property taxes, homeowner's insurance, mortgage insurance, etc.

F

Fair Housing Act; A law that prohibits discrimination in all facets of the homebuying process on the basis of race, color, national origin, religion, sex, familial status, or disability.

Fair Market Value; The hypothetical price that a willing buyer and seller would agree upon when they are acting freely, carefully, and with complete knowledge of the situation.

Fannie Mae; Federal National Mortgage Association (FNMA); A federally chartered enterprise owned by private stockholders that purchase residential mortgages and convert them into securities for sale to investors. By purchasing mortgages, Fannie Mae supplies funds that lenders may loan to potential homebuyers.

FHA; Federal Housing Administration; Established in 1934 to advance homeownership opportunities for all Americans. Assists homebuyers by providing mortgage insurance to lenders to cover most losses that may occur when a borrower defaults. This encourages lenders to make loans to borrowers who might not qualify for conventional mortgages.

Fixed-Rate Mortgage; A mortgage with payments that remain the same throughout the life of the loan, because the interest rate and other terms are fixed, and do not change.

Flood Insurance; Insurance product that protects homeowners against losses from flood; if a home is located in a flood plain, the lender will require flood insurance before approving a loan.

Foreclosure; A legal process in which mortgaged property is sold to pay the loan of the defaulting borrower.

Freddie Mac; Federal Home Loan Mortgage Corporation (FHLM); a federally-chartered corporation that purchases residential mortgages, securitizes them, then sells them to investors. As with Fannie Mae, this process provides funds for lenders to loan.

G

Ginnie Mae; Government National Mortgage Association; a government owned corporation overseen by the United States Department of Housing and Urban Development. GNMA pools FHA insured and VA (Dept. of Veteran Affairs) guaranteed loans to back securities for private investment. As with Fannie Mae and Freddie Mac, the investment income provides funding that may be then lent to eligible borrowers.

Good Faith Deposit; See Earnest Money.

Good Faith Estimate; An estimate of all closing fees including pre-paid and escrow items as well as lender charges. Must be given to the borrower within three days after submission of a loan application.

H

HELP, Homebuyer Education Learning Program; An educational program from the FHA that counsels people about the homebuying process. HELP covers topics like budgeting, finding a home, getting a loan, and home maintenance. In most cases, completion of the propgram may entitle the homebuyer to a reduced initial FHA mortgage insurance premium from 2.25% to 1.75% of the home purchase price.

Home Inspection; an examination of the structure and mechanical systems to determine a home's safety. Makes the potentional homebuyer aware of any repairs that may be needed.

Home Warranty; offers protection for mechanical systems and attached appliances against unexpected repairs not covered by homeowner's insurance. Coverage estends over a specific period of time and does not cover the home's structure.

Homerowner's Insurance; An insurance policy that comines protection against damage to a dwelling and its contents with protection against claims of negligence, or inappropriate action that results in a person's injury or property damage.

Housing Cunseling Agency; Provides counseling and assistance to individuals on a variety of issues including loan default, fair housing and homebuying.

HUD; U.S. Department of Housing and Urban Development; Established in 1965, HUD works to create a decent home and suitable living environment for all Americans. It does this by addressing housing needs, improving and developing American Communities, and enforcing fair housing laws.

HUD-1 Statement; Also known as Settlement Statement, it itemizes all closing costs. It must be given to the borrower at or before closing.

HVAC; Heating Ventilation and Air Conditioning; A home's heating and cooling system.

I

Index; A measurement used by lendes to determine changes to the interest rate charged on an adjustable rate mortgage.

Inflation; The number of dollars incirculation exceeds the amount of goods and services available for purchase. Inflation results in a decrease in the dollar's value.

Interest; Interest Rate; A fee charged for the use of of money. The amount of interest charged on a loan payment, usually expressed as a percentage of the loan.Insurance; Protection against a specific loss over a period of time that is secured by the payment of regularly scheduled premiums.

J

Judgment; A legal decision, when requiring debt repayment, a judgment may include a property lien that secures the creditor's claim by providing a collateral source.

K

L

Lease Purchase; Lease Option; Assists low to moderate income homebuyer's in purchasing a home by allowing them to lease a home with and option to buy it when the lease is up. The rent payment is made up of the monthly rental payment plus an additional amount that is credited to an account for use as a down payment.

Lien; A legal claim against property that must be satisfied when the property is sold.Loan; Money borrowed that is usally repaid with interest.

Loan Fraud; Purposely giving incoorect information on laon application in order to better qualify for a loan. May result is civil liabilty or criminal penalties.

Loan-to-Value (LTV) Ratio; A percentage calculated by dividing the amount borrowed by the price price or appraised value of the home to be purchased; the higher the LTV, the less cash a borrower is required to pay as a down payment.

Lock-In; Rate Lock; Since interest rates can change frequently, many lenders offer an interest rate long in that guarantees a specific interest rate if the loan is closed within a specific time.

Loss Mitigation; A process to avoid foreclosure; the lender tries to help a borrower who has been unable to make loan payments and is in danger of defaulting on his or her loan.

M

Margin; An amount the lender adds to an index to determine the interest rate on an adjustable rate loan.

Mortgage; A lien on the property that secures the promise to repay the loan.

Mortgage Banker; A company that orginates loans and resells them to secondary mortgage lenders.

Mortgage Broker; A firm that originates and processes loans for a number of lenders.

Mortgage Insurance; A policy that protects lenders against some or most of the losses that can occur when a borrower defaults on a mortgage loan. Mortgage insurance is required on all loans with less than 20% down payments.

Mortgage Insurance Premium; MIP; A monthly payment, usually included with the regular mortgage payment paid by a borrower for mortgage insurance.

Mortgage Modification; A Loss Mitigation option that allows a borrower to refinance and/or extend the term of the mortgage loan and thus reduce the monthly payments.

N

O

Offer; Indication by a potential buyer of a willingness to purchase a home at a specific price; generally put forth in writing.

Origination; The process of preparing, submitting, and evaluating a loan application. Generally includes a credit check, verification of employment, and property appraisal.Origination Fee; The charge for originating a loan. Usually calculated in the form of points and paid at closing.

P

Partial Claim; A Loss Mitigation option offered by the FHA that allows a borrower, with help from a lender, to get an interest free loan from HUD to bring their mortgage payments up to date.

PITI; Principle, Interest, Taxes, and Insurance; The four elements of a monthly mortgage payment. Payments of Principal and Interest go directly towards repaying the loan while the portion that covers taxes and insurance goes into an escrow account to cover the fees when they are due.

PMI; Private Mortgage Insurance; Privately owned companies that offer standard and special affordable mortgage insurance programs for qualified borrowers with down payments less than 20% of a purchase price.

Pre-Approval; A lender's commitment to lend to a potential borrower. Commitment remains as long as the borrower still meets the qualification requirements at the time of purchase.

Pre-Foreclosure Sale; Allows a defaulting borrower to sell the mortgaged property to satisfy the loan and avoid foreclosure.

Pre-Qualify; A lender informally determines the maximum amount an individual is eligible to borrow.

Premium; An amount paid on a regular basis by a policyholder that maintains insurance coverage.

Prepayment; Payment of the mortgage laon before the scheduled due date. May be subject to a prepayment penalty.

Principal; The amount owed to a lender that does not include interest or additional fees.

Q

R

Radon; a Radioactive gas found in some homes that if occuring in strong enough concentrations, can cause health problems.

Real Estate Agent; An individual that is licensed to negotiate and arrange Real Estate Sales. Works for a real estate broker.

Realtor; a real estate agent or broker who is a member of the National Association of Realtors, and its local and/or state associations.

Refinancing; paying off one loan by obtaining another; refinancing is generally done to secure better loan terms, like lower interest rates.

Rehabilitation Mortgage; A Mortgage that covers the costs of rehabilitating (repairing or improving) a property. Some rehabilitation mortgages like the FHA's 203(k) - allows a borrower to roll the costs of rehabilitation and home purchase into one mortgage loan.

RESPA; Real Estate Settlement Procedures Act; A Law protecting consumers from abuses during the residential real estate purchase and loan process by requiring lenders to disclose all settlement costs, practices, and relationships.

S

Settlement; Another name for Closing. See Closing.

Special Forbearance; A loss mitigation option where the lender arranges a revised repayment plan for the borrower that may include a temporary reduction or suspension of monthly loan payments.

Subordinate; To place in a rank of lesser importance or to make one claim secondary to another.

Survey; A property diagram that indicates legal boundaries, easements, encroachments, rights of way, improvement locations, etc.

Sweat Equity; Using labor to build or improve a property as part of a down payment or to increase the value of the property.

T

Title 1; An FHA insured loan that allows a borrower to make non-luxury improvements (repairs or renovations) to their home. Title 1 loans for less than $7500, do not require a property lien.

Title Insurance; Insurance that protects the lender against any claims that arise from arguments about ownership of the property. A title insurance policy that protects the homebuyer from similar claims is also available.

Truth in Lending Law; A federal law obligating a lender to give full written disclosure of all fees, terms, and conditions, associaed with the loan initial period and then adjusts to another rate that lasts for the term of the loan.

U

Underwriting; The process of analyzing a loan application to determine the amount of risk involved in making the loan, it includes a review of the potential borrower's credit history and a judgment of the property value.

V

V.A.; Department of Veterans Affairs; A federal agency which guarantees loans made to veterans, similar to mortgage insurance, a loan guarantee protects the lenders against loss that may result from a borrower default.

W

X

Y

Z

0-9

203(b); FHA program which provides mortgage insurance to protect lenders from default. Used to finance of new or existing homes (1 to 4 units). Characterized by low down payment, flexible qualifying guidlines, limited fees, and a maximum loan amount.

203(k); This FHA mortgage insurance program enables homebuyers to finance both the purchase price of a house in addition to the cost of its rehabilitation.

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